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A Healthy Quarter for the Worldwide Nutrition Leader

GNCHoldings (NYSE: GNC) reported earnings on Oct. 24, and it displayed growth on both the top and bottom lines. However, like many companies reporting lately, it beat on earnings per share but missed revenue estimates. Yet even with the mixed quarter, the stock has moved higher. Let's see if we should buy now or wait for a pullback.

General nutrition centersGNC, or the General Nutrition Center, operates as a worldwide specialty retailer of health and wellness products. Its products include vitamins, nutritional products, and dietary supplements, as well as fitness equipment and accessories. The company also released a new line of pet care products which gives it exposure to another multi-billion dollar industry. GNC is one of the most popular companies in America, with an estimated 82% brand recognition.

Source: GNC Corporate Website

TheresultsGNC showed growth in both domestic and international markets this past quarter. Here is an overview of the report:

Statistic

Reported

Expected

Earnings Per Share

$0.76

$0.76

Revenue

$675.60 million

$690.93 million

Earnings per share grew 24.6%, and revenue rose 8.7% year-over-year. The company's gross margin was relatively unchanged at 37.6%. Strength was shown in all three business segments, with retail revenue increasing 9.5%, franchise revenue growing 9.3%, and manufacturing and wholesale revenue rising 2.4%. Once the market opened for trading after the report the stock declined over 6%, but it has since rebounded and actually risen 3%.

I believe investors overreacted to the revenue miss, but later realized it was still a solid quarter and that the estimates may have been a bit too optimistic. Projected estimates being met or exceeded are not the tell-all for how a company is doing financially; I prefer looking at year-over-year results and drawing my own conclusions, and GNC had a great third quarter.

Year in review and outlookIn the nine months ended Sept. 30, GNC has grown steadily from the same period in 2012. Take a look at the year-over-year comparison:

Earnings per share has grown 22.7% to $2.22

Revenue has risen 8.13% to $2.02 billion

Dividends paid out will total $0.60 per share compared to $0.44 in 2012

Opened a total of 426 locations compared to 398 in 2012 which brings its grand total to 8,444 worldwide

Management raised its full-year outlook for fiscal 2013 and now expects earnings to be between $2.85 and $2.89, representing 22%-24% growth from 2012; this is mainly due to the reduction in shares outstanding through share repurchases. Overall, GNC showed strength both year-over-year on a quarterly basis and a nine-month basis, which will ultimately result in substantial annual increases. I believe this report will allow the stock to continue pushing toward fresh 52-week highs going into its fourth quarter and full-year results.

Update on the beneficiariesOn Sept. 27, we took a look at three companies that would benefit from GNC's continued popularity and brand strength; these companies are Amazon (NASDAQ: AMZN) , eBay (NASDAQ: EBAY) , and RiteAid (NYSE: RAD) . Amazon will benefit from online sales in which it earns a commission and through GNC's monthly fees to sell on the website and to use Amazon's storage facilities. eBay benefits from online sales as well, and through additional fees when users pay for items through PayPal. Finally, Rite Aid has 2,206 store-within-a-store GNC locations; these stores have consistently outperformed the overall vitamin category and their popularity has continued to grow, causing another 25 locations to be added year-to-date. Let's see how each stock has performed since Sept. 27:

Amazon

+14.99%

eBay

(7.42%)

Rite Aid

+8.94%

S&P 500 Index

+4.17%

As GNC grows and gains popularity, these companies will continue to reap the benefits. Amazon and Rite Aid have had great rallies and have far outperformed the overall market, so I would wait for these to come down a little before considering investments. eBay has struggled since reporting a few weeks back when it issued weak fourth quarter guidance, but it has become a value play at current levels. With that said, the best way to play GNC is simply by investing in GNC.

The Foolish bottom lineGNC is a great American nutritional company set to grow earnings over 20% in 2013. It reported a good set of numbers on Oct. 24. I believe the results will support a rally to new 52-week highs for the next several weeks. Any weakness provided by the market in the days to come is nothing more than a buying opportunity for value investors.

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